Taxation

R&D tax breaks are often offered to businesses to encourage innovation. This column uses evidence from a tax reform in China to study the relationship between tax enforcement and firm innovation. Lower taxes improve both the quantity and quality of firm innovation, and have a bigger impact on those firms that are either financially constrained or those that engage more in tax evasion.

Although inheritance taxes are of growing importance for Western economies in raising government revenue, little is known about how inheritance taxation affects individuals’ incentives to work. This column explores how much additional labour income tax revenue from heirs the government can expect to obtain for each euro of revenue raised directly through inheritance taxes. It concludes that additional labour tax payments from heirs, resulting from an increase in bequest taxes, are of sizable magnitude and should be taken into account in fiscal planning and welfare analysis.

Firms like to be politically connected, because it makes it easier for them to do business. But is it good for the rest of us? Ufuk Akcigit of the University of Chicago tells Tim Phillips about the consequences of connecting to power.

The impact of a public policy partly depends on how effective it is in selecting its targets. Machine learning can help by exploiting increasingly available amounts of information. Using data from Italy, this column presents two examples of how to employ machine learning to target those groups that could plausibly gain more from the policy. It illustrates the benefits of machine-learning targeting when compared to the standard practice of employing coarse policy assignment rules based on a few arbitrarily chosen characteristics.

The extent to which tax policies influence the amount of labour that private households supply has been at the centre of many public policy debates. Within married couples, joint versus separate taxation may be one factor that contributes to differences in household labour supply. This column uses a model that closely reproduces the changes in married women’s labour supply in the US and Europe between the early 1980s and 2016 to show that taxes are indeed a major factor shaping the labour supply of married women.